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Monday, September 12, 2011

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Jim Jesus

Paul Krugman is an idiot. Now I'm no fan of BitCoin but I am sympathetic to the idea of a secure non-inflationary monies. Paul Krugman believes right now people shouldn't be saving money or 'hording' as he puts it. Instead we should be taking out loans to spend money we don't have and inflating the currency to drop interest rates. Mind you this is a major player in caused the housing market crash that he said would bring us a permanent plateau of prosperity.

If you want to save money, invest in precious metals. If you want to spend money, use FRNs. If you want to buy illicit street drugs, use BitCoin. Be careful, too many drugs and you'll end up like Krugman.

Meh

Krugman does not "analize" anything, let alone give background information to carry his statements.


«Which probably explains why so few actual transactions of actual goods and services seem to happen with Bitcoin»

Sez wo? Based on what numbers? If you look at the amount of Bitcoins going around, you will see that this is huge. And that the BTC going in and out of exchanges make but a small part of the entire transaction volumes.

That said, all these "deflation is stupid because you punish people spending money" arguments are moot in the first place.
It may very well be true that deflation does not push people to spend their wealth. But so do transaction fees, creditcard fees, transfer costs, atm-costs, paypal-fees and so on and so on. Do we all spend less money trough paypal because we loose 3% each and every time? Probably. But certainly not enough to void the entire concept of Paypal. And frankly, the 3% fee is nearly double the loss you make, had you waited a year, not spending, and lost only 1.6% of your wealth on inflation.

Domchi Underwood

Bitcoin is currenly in the trough of disillusionment, and everybody is feeling smart repeating what was obvious from the start: of course the demand and the price couldn't grow forever. It's simply having it's flying dildos moment. But when you objectively look at the technology itself, it's revolutionary. It IS the P2P currency, it's something completely new, and new things are in development that weren't possible before, anywhere, ever. It's about much more than a current BTC exchange rate, just like SL is about much more than which famous company will open a store in SL. Instead of looking at the bitcoin exchange rate and speculating about adoption, do your homework and look at more relevant data. For example, here's the transaction volume in USD for the past year. It almost exactly maps to the hype cycle curve.

L$ price is constant since Linden Lab is keeping it constant. Nobody is controlling the price of bitcoin. It's still a new currency, and it will take years to gain enough adoption to be stable. And once it does, the price of a bitcoin doesn't matter - the fact that you can buy it and send it to the other end of the world without any fees does.

Hamlet Au

"Sez wo? Based on what numbers? If you look at the amount of Bitcoins going around, you will see that this is huge."

Well that's a good question, do you have stats on the number of people using Bitcoin to buy and sell goods services? Not just going around, but being used as a, you know, money.

Domchi Underwood

Hamlet, I just took a bit of time to calculate raw data, and Bitcoin volume in the last month is about equal to LindeX 3-month volume (about 31 million USD). And the last month was pretty bad for Bitcoin compared to the hype months. That might put things in perspective a bit.

Mark C

Meh, you are one massively confused individual.

Mark C

"Bitcoin volume in the last month is about equal to LindeX 3-month volume (about 31 million USD)."

So a currency designed to be used by any of 6 billion people on any sort of goods or services whatsoever is doing hardly any better than one designed to be used by a few hundred thousand to buy clothing for digital dress-up dolls in one MMO. Impressive.

Galatea Gynoid

The trading volume or value of Bitcoin is irrelevant to its use as a currency (note: currency, not commodity). The question is, what is the volume and value of the goods and services bought and sold with Bitcoin?

As a commodity, it may be doing well, but as a currency, Krugman is spot-on. So far, it's appears to be an utter failure.

Scarp Godenot

Krugman is absolutely right about a currency being for facilitating transactions and production and not for specualtive valuation.

This is a key point in economics and exactly what caused the economic meltdown of 2008.

Money playing with money and not turning over into production.

Amin

@Scarp,

"Krugman is absolutely right about a currency being for facilitating transactions and production and not for specualtive valuation.

This is a key point in economics and exactly what caused the economic meltdown of 2008."

It was Krugman's insistence that money be inflated to facilitate transactions that led to people investing in real estate, as an inflation hedge, and led to housing prices increasing so much over the decade and causing the bubble and financial crisis.

Amin

@Scarp,

"Krugman is absolutely right about a currency being for facilitating transactions and production and not for specualtive valuation.

This is a key point in economics and exactly what caused the economic meltdown of 2008."

It was Krugman's insistence that money be inflated to facilitate transactions that led to people investing in real estate, as an inflation hedge, and led to housing prices increasing so much over the decade and causing the bubble and financial crisis.

Amin

@Scarp,

"Krugman is absolutely right about a currency being for facilitating transactions and production and not for specualtive valuation.

This is a key point in economics and exactly what caused the economic meltdown of 2008."

It was Krugman's insistence that money be inflated to facilitate transactions that led to people investing in real estate, as an inflation hedge, and led to housing prices increasing so much over the decade and causing the bubble and financial crisis.

Nahasa Singh

"Nobel-Winning Economist Paul Krugman"

I used to prefer "Former Enron advisor and housing bubble enabler Paul Krugman"

But since his recent NYT post on 9/11, I just use "despicable", it's simple and to the point.

Ananda Sandgrain

ROFLMAO at the revisionist history comments here... yes, we're all aware that Krugman is a liberal and therefore is The Devil. Thing is, he's right - if you're looking for a vaporware virtual commodity to make a perfect bubble out of, Bitcoin is perfect. If you're looking to actually *use* it as a currency, it's a failure.

But of course facts never get in the way of a good character trashing.

qarl

so - i gotta ask - what's with the bitcoin-hate?

because to my eye - it's almost identical to the thing where outsiders hate second life: "oh you say this is supposed to be cool but it sux and so do you. HAHAHAHHAHAHAHHA!"

and while i have immense respect for Krugman - he didn't really do much research before issuing his opinion. but i can understand - he's a busy guy.

to answer "what is it good for"? it's VERY good at exchanging money when "the man" doesn't want you to. want to donate to wikileaks? can't use paypal, can't use visa, can't use mastercard. CAN use bitcoin. and there's the drug-buying thing too.

just like SL-hating - i gotta say - if you don't like it so much - just ignore it. the fact that you keep talking about it speaks volumes.

John Lopez

Bitcon in a multilevel marketing scam gone big. I have to give the creators props for the innovation of the method, but the real profits have already been cashed out as the early adopters cashed out through dodgy "exchanges" such as Mt. Gox(1).

It reminds me so much of the L$ "banks" that ended up taking people to the cleaners that I find the idea that people who should be able to remember *that* scheme are thinking that defending Bit Coin makes sense.

The case of the United States Private Dollars and Liberty Dollars is also illustrative of the fate of "private currencies" (2)

Which isn't to say that BitCoin won't have some back ally credibility, where the risk of a more conventional payment may outweigh the risk of BitCoin (or perhaps as a fun experiment for geeks), but I for one wouldn't keep holdings in something that might attract Federal Agent Attention (TM).

Life is too short and federal sentences too long.


(1) http://www.dailytech.com/Inside+the+MegaHack+of+Bitcoin+the+Full+Story/article21942.htm
(2) http://en.wikipedia.org/wiki/Private_currency#United_States_Private_Dollars

qarl

your comment raises an interesting point, John - what exactly is the difference between the illegal currencies (liberty dollars) and the legal ones (linden dollars)?

i can see absolutely no practical difference between linden dollars and bitcoins.

TheBlack Box

I think arguing just about Bitcoins totally misses the point.

The interesting questions are about crypto-currencies in general.

File-sharing didn't die with Napster or Gnutella.

Web2.0 didn't die with MySpace.

And crypto-currencies wont die even if Bitcoins vanish.

The hype and its aftermath around Bitcoins are just a moment in time. I highly recommend looking at the bigger picture here.

Ignatius Onomatopoeia

Hey, I'm a Leftist like Prof. Krugman, but his disdain for virtual currencies has nothing to do with politics.

And he's wrong about them, too. An irony is that the Times could not even set up a system for digital subscriptions. They spent--I'm told--20 million dollars doing so.

And clearing their cookies from one's browser defeats the entire system...some digital savvy there, in Times Square!

Danielle

Before there was money, there was barter, and you had to find someone who had what you wanted (say, some meat) and also wanted what you had (say, bread). Splitting the barter trade using an intermediate item (money) means you can now sell your bread to anyone who wants bread, not just the few who want bread and have meat to trade for it, and you can buy your meat from anyone with meat to sell.

As long as it is an acceptable intermediary for a large group of people, *anything* can serve as money. What's different about bitcoin is instead of being issued by a government or a bank, it's issued by distributed computation. After that, it's usefulness depends on the "network effect". Government generated money is accepted by almost everyone, thus the network of buyers and sellers includes almost everyone. Bitcoin at present is only accepted by a few people, so the network of buyers and sellers is small. Whether that will grow remains to be seen.

John Lopez

This is a long delayed reply to qarl's question about currency legality: "what exactly is the difference between the illegal currencies (liberty dollars) and the legal ones (linden dollars)?"

As far as I can tell the difference is in what the currency can purchase easily. While you *can* take L$ as payment for projects, those projects probably were small and in SL itself. Bitcoin attempts to replace currency, not just online, but in physical establishments. (The people extolling Bitcoin will point to various places where you can make a purchase with a physical vendor, although I personally haven't encountered a "we accept Bitcoin" sign even once.)

In other words, the Feds seem to become concerned when a significant amount of transactions are being done solely in a currency. I have been paid for major projects in L$, but I cashed them out to use the proceeds. That step in turn creates a paper trail and thus helps insure that taxes are paid.

Let's be honest the Fed's goal here: the tax issue is at the center of their attention. Bitcoin appears to allow tax evasion (assuming you can find vendors to take your cryptocoin). L$, on the other hand, pretty much need to be converted to dollars to do much useful with them.

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